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October 2009

The leading justification offered by FCC Chairman Genachowski in his "Open Internet" speech announcing his intention to pursue formal net neutrality regulations was that "limited competition" was "simply a fact."

A fair review of the facts shows that broadband competition is anything but limited, it is actually robust, dynamic, and increasing in intensity.

The problem comes from a choice to assume a static and pessimistic view the competition glass as half empty, because it is not perfect.

This is not a fair representation of the broadband competitive situation because the core markets involved were originally price regulated monopolies but now are increasingly-dynamic, fiercely competitive markets where literally many tens of millions of Americans have taken advantage of available competitive choices.

I would like to highlight some important and illuminating competitive facts presented in an outstanding post by Link Hoewing over at Verizon's Policyblog:

If you are interested in learning great "pearls of wisdom" based on expansive experience and clarity-of-thought on the question of wireless innovation, and proposed Internet regulation of wireless innovation, please read the Farber-Faulhaber white paper; at a minimum, please read the many wonderful highlights that I have pulled out of the paper for you below.

Professor Dave Farber, a widely respected Internet pioneer who has been called the "grandfather of the Internet" for his contributions to computer science, and a former Chief Technologist for the FCC, co-authored an important white paper with Professor Faulhaber for the FCC's Wireless innovation Notice of Inquiry.

FreePress' standard gameplan is to avoid engaging issues on the merits by constantly attacking opponents as biased corporate "shils" or "astroturf" that no one should listen to. I have long been up front that I represent broadband interests. FreePress, and their supporters, however, do not live up to the transparency standard that they demand of others.

For example, FreePress' urged Washington Post reporter Cecilia Kang to post that The Washington Post editorial opposing net neutrality "The FCC's Heavy Hand" should have disclosed the Post's ownership of cable properties. On that basic point of transparency/disclosure I agree.

However, when it comes to the news, Ms. Kang appears to have failed to disclose her increasingly obvious bias for promoting FreePress and their net neutrality agenda.

I posted the comment below on the Washington Post's IT blogpost where FreePress urged the the Post to disclose its financial interests in cable systems.

FreePress hounds any voice that doesn't support 'net neutrality' regulation to disclose their financial interests, like they did with urging the Washington Post to disclose that they owned cable systems in their editorial opposing net neutrality. I agree they should have disclosed, but I don’t agree that disclosure is only important for net neutrality opponents, but not for proponents like FreePress and its allies. What’s good for the goose is good for the gander.

FreePress has frequently attacked me as a shill and Astroturf. They ignore that I openly, unabashedly, and regularly disclose that my firm Precursor LLC is an industry consulting firm that works for companies and that I am Chairman of NetCompetition.org which is funded by broadband interests. It is not news that I strongly agree with the broadband sector view that markets produce better outcomes for consumers than regulation.

Regulate down for all not up for some is the excellent core message of the Wall Street Journal's op-ed "Google Exceptionalism," which spotlights the slippery slope toward Internet regulation of selectively applying new net neutrality regulations to only some "networks" predicated on fairness.

The WSJ op-ed helps focus the debate on what has helped make the Internet so successful --the bipartisan Internet policy statement in the 1996 Telecom Act that it is the policy of the United States "to preserve the...competitive free market... Internet... unfettered by Federal or State regulation." For fifteen years, bipartisan consensus has resisted the siren song of some to regulate or tax the Internet, and in turn this bipartisan consensus has allowed the Internet to flourish.

The WSJ op-ed also helps focus the debate on the perils of abandoning regulatory restraint toward the Internet based on neutrality/fairness.

The FCC Chairman's proposed rules to preemptively regulate a segment of the Internet to preserve an open Internet, risks reversing the current successful dynamic of fairly "regulating down" with less regulation rather than unfairly "regulating up" with more regulation for some.

Bret Swanson of Entropy Economics penned another great op-ed on net neutrality today entitled: "Google and the problem with net neutrality: Broadband has been a rare bright spot in the economy. Why discourage investment?"

My favorite point Bret made was pointing out all of the investment, innovation and competitive benefits that have occured since net neutrality supporters have said there was a problem requiring regulation circa 2004.

Not only have net neutrality supporters not been able to find credible evidence of an industry pattern of anti-competitive problems over the last five years, they also are ignoring all the competitive gains and benefits that have occurred over the last five years as well.

Facts matter and facts are not the friends of net neutrality proponents.

Both the FCC and FTC Chairmen appear to be suggesting that the current fifteen-year competition policy experiment in law to promote competition and reduce regulation in communications will ultimately fail -- requiring new preemptive common-carrier-like nondiscrimination regulation of ISPs to preserve a free and open Internet.

In his September 21st speech, FCC Chairman Julius Genachowski's first reason justifying the need for preemptive new FCC net neutrality regulations was limited ISP competition:

"One reason has to do with limited competition among service providers. As American consumers make the shift from dial-up to broadband, their choice of providers has narrowed substantially. I don’t intend that remark as a policy conclusion or criticism -- it is simply a fact about today’s marketplace that we must acknowledge and incorporate into our policymaking."

FTC Chairman Jon Leibowitz, in a 10-4-09 letter to the editor of the Washington Post in response to the Post's editorial, "The FCC's Heavy Hand," said:

Google's increasing bottleneck control over digital info distribution is currently the leading threat to Internet competition and user's competitive access to the information of their choice. While many generally appreciate Google's growing Internet dominance, they want to better understand how Google increasingly dominates the distribution of digital information.

To explain this Google anti-competitive problem succinctly and visually, I have produced a one-page chart PDF that shows how distribution competition for digital information -- that supplies digital information to Internet consumers -- is being squeezed between Google's search advertising monopoly selling power on one side and Google's wholesale info access monopsony buying power on the other -- creating growing info-opoly control over digital information by Google.

The antitrust problems that emerge from this increasing monopoly/monopsony Google bottleneck control are two-fold:

It anti-competitively forecloses competition among digital info distributors; and

It anti-competitively lessens the quality, integrity and diversity of digital information for consumers.

Most have not appreciated the full scope of Google's increasing bottleneck control over digital information, because they did not understand how Google's wholesale dominance of both the "selling" of information via advertising and the "buying" of information via indexing makes Google the world's dominant broker of information.

Given that the apparent justification for new formal net neutrality rules is that fifteen-year policy has failed and that the market is unable to ensure consumer choice, the FCC will need to justify with facts that broadband providers indeed have market power to exercise anti-competitively.

Kudos to Larry Darby of the American Consumer Institute for his excellent and illuminating comparative financial analysis of the market power and profits of broadband companies vs. Internet companies. From his post: